A shooting star forex is a type of candlestick pattern that is commonly used by traders to identify potential changes in the price direction of a currency pair. It is a bearish reversal pattern that can be seen on a price chart, indicating that the price of a currency pair may be about to drop.
The shooting star pattern is characterized by a long upper shadow and a small real body, with little or no lower shadow. The long upper shadow represents the high of the day, while the small real body represents the opening and closing prices. The absence of a lower shadow indicates that the price never traded below the opening price, but was pushed down by selling pressure towards the end of the day.
The shooting star pattern is formed when the price of a currency pair opens higher than the previous day’s close, but then experiences selling pressure throughout the day. This results in the price dropping significantly, with the bears taking control of the market. The long upper shadow represents the bulls’ attempt to push the price higher, but the bears eventually overwhelmed them and pushed the price back down.
The shooting star pattern is a reliable indicator of a bearish reversal, especially when it occurs after a long uptrend. The pattern indicates that the bulls are losing control of the market, and that the bears are gaining strength. Traders often look for confirmation of the pattern before making a trade, such as a bearish candlestick pattern or a drop in volume.
When trading based on the shooting star pattern, traders often place a sell order below the low of the shooting star candle, with a stop loss above the high of the candle. This allows traders to take advantage of the potential downward momentum while minimizing their risk.
It is important to note, however, that the shooting star pattern is not always accurate, and should not be relied on solely for making trading decisions. Other factors, such as market sentiment, fundamental analysis, and technical indicators should also be taken into consideration before making a trade.
In summary, a shooting star forex is a bearish reversal pattern that can be used by traders to identify potential changes in the price direction of a currency pair. It is characterized by a long upper shadow and a small real body, and indicates that the bears are gaining strength and may take control of the market. Traders often look for confirmation of the pattern before making a trade, and use stop losses to minimize their risk. However, it is important to consider other factors before making a trade, as the shooting star pattern is not always accurate.
